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Robert Reich on how to reduce the deficit

In a recent blog post, Robert Reich points out that Obama won re-election, so he needs to aim much higher on the upcoming budget deal. Unlike his first not-so-grand bargain, he proposes that Obama take cuts to the safety net programs most American families count on—Social Security, Medicare and Medicaid—off the table, and concentrate on increasing revenue.

Obama needs to preserve the safety nets, and I hope he does, but it’s most likely he won’t. As Taylor Marsh has so insightfully pointed out, Obama is a fiscal conservative, a new kind of “Democrat” who is really a new brand of Reagan Republican. This is why the words “Democrat” or “Democratic Party: rarely if ever pass his lips. He has no identification with traditional Democratic principles or ideals, and has no real working relationship with progressives in the House or Senate.

There are a lot of ways to structure a “grand bargain” besides Obama’s draconian plan that loads the reduction of the deficit on the backs of those who can least afford it. Reich offers a compelling alternative to get to $4 trillion in deficit reduction in the next decade. You can read his entire post here. The following is a summary of his ideas.

First, raise taxes on the rich to 55.2% for Americans making over $1 million after deductions and credits, bringing in $80 billion more annually, and reducing the budget deficit by about $1 trillion over the next decade— a quarter of the $4 trillion in deficit reduction.

Next, impose a 2% surtax on the wealth of the richest one-half of 1 percent, bringing in another $750 billion over the decade.

Institute a one-half of 1 percent tax on financial transactions, which will bring in an additional $250 billion. The wealth tax and financial transactions tax, together, brings us to $2 trillion or half of the deficit-reduction goal.

Raise the capital gains rate to match the rate on ordinary income and cap the mortgage interest deduction at $12,000 a year, bringing in another $1 trillion over ten years. So now we’re up to $3 trillion in additional revenue.

Eliminate special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street, and we’re nearly there.

End the Bush tax cuts on incomes between $250,000 and $1 million, and — bingo — we made it: $4 trillion over 10 years.

What Reich proposes should be Obama’s starting bid. Obviously, he can’t get everything, but as a newly re-elected Democratic president, I think he has a responsibility to move the goal post to the left. Most likely, his Grand Bargain 2.0 will look a lot like Grand Bargain 1.0, because that’s what he wants. I would love to eat my hat.

The strategy for progressives should be to put pressure on the White House, senators and congressman to demand that the wealthy pay a lot more than the small increase Obama is asking and that “entitlements” are left alone. After all, when people like the Koch brothers and Bill Kristol suddenly approve of the Grand Bargain, you can bet the deal is a bad one for you.